Here's a sign of how shaky the economy has become: Wal-Mart says its shoppers are redeeming their holiday gift cards for basic items - pasta sauce, diapers, laundry detergent - instead of iPods or DVDs.
Merchants had hoped shoppers armed with gift cards would provide a lift after a dismal holiday season - partly because shoppers tend to spend more than the value of the card. But that didn't seem to happen and retailers are feeling the pain.
Thursday, the nation's retailers turned in their worst January in almost four decades as high gas and food prices, a slumping housing market, tighter credit and a tougher job market pushed consumers to the edge.
Sales at 43 retailers surveyed by the UBS-International Council of Shopping Centers rose 0.5 percent in January, well below the original 1.5 percent forecast.
The results followed an anemic 0.7 percent pace in December and were below the 2.1 percent gain for all of last year.
Jill Panell, 26, a homemaker from Sterling Heights, Mich., was using a $20 Wal-Mart gift card Thursday to buy groceries and pet supplies.
"Twenty dollars at Wal-Mart is easy to spend," she said.
Analysts think it's happening in other stores, too.
"Gift cards are being used as a secondary way to save," said Burt P. Flickinger III, managing director of retail consulting firm Strategic Resource Group.
Even at department stores, he said, consumers are using gift cards to buy basic apparel such as socks and lingerie.
The assessment by Wal-Mart Stores Inc., the world's largest retailer, that gift card redemptions were below expectations and people were buying only necessities shook industry observers. Retailers record gift-card revenue as cards are redeemed.
"It shows you the level of worry. Even with free money in your hand, (consumers) aren't willing to spend on anything more than necessities," said Michael P. Niemira, chief economist at International Council of Shopping Centers.
Niemira said January's retail performance was the weakest for that month since at least 1970, when comparable records started.
Shoppers appear to be looking at gift cards not as "free money" but rather as their "own personal cash," said C. Britt Beemer, chairman of America's Research Group, citing his recent surveys with consumers.
They're also holding on to the gift cards longer - 15 percent of the 1,000 consumers his group interviewed said they redeemed their gift cards in December, compared with 33 percent who did so last year.